The estate of Terraform Labs has initiated a significant lawsuit against Jump Trading, accusing the market-making giant of manipulating its ecosystem to profit during the project’s collapse. The liquidation trustee claims that Jump’s actions were deceptive and asserts that the responsibility for this major crypto failure extends far beyond founder Do Kwon.
Collapse That Reshaped the Crypto Landscape
This lawsuit revisits the dramatic downfall of TerraUSD and its sister token, LUNA, in 2022. Terraform Labs had designed TerraUSD as an algorithmic stablecoin aimed at maintaining a one-dollar peg through trading incentives rather than relying on reserves.
However, when this model failed, confidence in the system evaporated almost overnight. In a matter of days, LUNA spiraled downwards, erasing over $40 billion in market value and sending shockwaves throughout the digital asset industry.
The repercussions were felt widely, contributing to the subsequent failures of major crypto lenders and hedge funds, which ultimately deepened the crisis of trust across the sector. Terraform Labs declared bankruptcy in early 2024 and later agreed to pay approximately $4.5 billion to settle civil lawsuits initiated by the U.S. Securities and Exchange Commission (SEC).
Do Kwon, the company’s co-founder, who pled guilty to criminal charges, was recently sentenced to 15 years in prison.
Secrecy Behind Agreements
However, according to the bankruptcy estate, the tale does not end with Kwon. Todd Snyder, the court-appointed administrator for Terraform’s liquidation, alleges that Jump Trading played a hidden yet pivotal role in sustaining Terra long before its ultimate failure.
The court documents state that Jump and Terraform entered into undisclosed agreements as far back as 2019. As part of these arrangements, Jump allegedly gained access to millions of Luna tokens at significantly reduced prices. A particular deal cited in the complaint allowed Jump to purchase LUNA for approximately $0.40 per token, even as market prices soared above $110.
Snyder asserts that such arrangements paved the way for substantial profits once Luna surged.
The lawsuit also mentions an informal “gentlemen’s agreement” between Jump and Terraform. According to Snyder, Jump covertly committed to supporting TerraUSD during times of stress, while Terraform publicly attributed any recovery to the strength of its algorithm. This agreement was purportedly concealed to evade regulatory scrutiny and market oversight.
Warning Signs in May 2021
The lawsuit emphasizes events that transpired in May 2021 when TerraUSD briefly lost its dollar peg. At that time, Terraform claimed that the recovery of the stablecoin demonstrated the resilience of its design. The lawsuit now alleges a different narrative.
Snyder contends that Jump intervened by purchasing large amounts of TerraUSD, thereby masking foundational weaknesses within the system. Investors were misled into believing that the mechanism was functioning as intended.
Following this episode, which disclosed design flaws in Terra, Jump allegedly negotiated the removal of vesting and lock-up clauses in its contracts, thereby allowing the firm to receive Luna allocations monthly and sell them immediately.
This move reportedly amplified selling pressure and positioned Jump to exit profitably as risks escalated.
Jump Denies Wrongdoing
In response, Jump Trading has vehemently denied these allegations and plans to mount a vigorous defense. A spokesperson for the firm characterized the lawsuit as an effort to shift accountability away from Terraform Labs and Do Kwon.
Earlier in 2024, the SEC accused Jump’s crypto unit, Tai Mo Shan, of intervening during the May 2021 debacle and subsequently benefiting from unlocked LUNA sales. Tai Mo Shan settled these claims for about $123 million without admitting any wrongdoing.
During SEC questioning, Snyder and former Jump Crypto president Kanav Kariya frequently invoked their Fifth Amendment rights. According to Snyder, the current trial centers on accountability. Even with Kwon imprisoned, he maintains that the courts must still determine who knew what, who intervened, and who ultimately profited from the rise and fall of Terra.
